Q&A: Small Business Health Exchanges

The Obama administration recently revealed plans to delay part of a program designed to make health insurance more affordable for small employers. If you're a small-business owner, what does this mean for you?

For starters, the initiative is called Small Business Health Options Program, or SHOP. It's an insurance marketplace, or "exchange," for businesses with 100 or fewer full-time-equivalent employees. Each state will have one starting next year. Some states will run their own exchanges, while others will be run in part or entirely by the federal government.

The SHOP is a key part of the health-care law because it aims to help lower insurance premiums by spreading the costs and associated risks among a large pool of participants.

Average annual premiums for employer-sponsored health insurance in 2012 were $5,615 for single coverage and $15,745 for family coverage, according to the Kaiser Family Foundation. That's up from $3,083 and $8,003, respectively, in 2002.

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Small businesses are not required to enroll in SHOP but those with 50 or more full-time equivalents must provide their employees with health insurance starting in 2014, or pay a penalty. The penalty is $2,000 for each full-time employee in excess of 30 full-time employees. There are no penalties if part-time employees aren't offered coverage. (See related story, "Some Small Businesses Opt for the Health-Care Penalty.")

Overall, about 73% of firms with 10 to 24 employees offered health insurance in 2012, up from 70% in 2002, according to Kaiser. Of firms with 25 to 49 workers, 87% offered insurance in 2012, the same as in 2002.

What does the delay mean?

Originally, the 33 state exchanges run fully or in part by the U.S. were supposed to allow qualifying small businesses to select several insurance plans to could offer to their employees. But a proposed rule released in early March by the administration would limit businesses to offering only one plan to their workers for the first year that the law is in effect. It's also possible that the 17 states running their own exchanges will enact a similar delay for 2014.

What kinds of plans will small businesses be able to choose among?

The exchanges will offer insurance plans from private insurance companies that will vary by state. Which insurers will join the exchanges, what kind of plans they'll offer and what they'll cost has yet to be determined because the exchanges are still being set up.

When will I be able to start using my state's exchange?

Enrollment is slated to begin in October of this year, at which time information on which insurance providers will be offering plans and more will become available. You'll be able to enroll online or via a toll-free phone hotline. The plans, however, won't actually take effect until January 2014.

Will I be able to get a tax credit if I use my state's exchange?

The answer depends on your size. If you have fewer than 25 full-time equivalent employees, you may qualify for a tax credit of up to 35% of your premium costs this year and up to 50% in 2014.

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